Market snapshot: generally heavy going for stocks  

US investors have not yet had the chance to react to the Greenland threat and Dow futures continue to imply an opening drop for each of the main US indices of between 1% and 1.5%. The weakness is also due to the likelihood of an update from the Supreme Court on the legality (or otherwise) of the original tariffs imposed by the US. A negative decision would impact markets on both an economic and practical basis, with the financial spaghetti needing to be untangled on the tariff monies received so far.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

In the meantime, with US markets closed, the Greenland reverberations were felt elsewhere, especially in Europe where tariff threats on eight countries reignited both inflation fears as well as the possibility of economic retaliation, leading to some heavy going for the main indices across the continent.

That said, market reaction has been relatively contained which implies that investors are not currently considering outright control of Greenland by the US as the end game. While past performance is no guarantee of what is to come, the President has displayed a negotiating tactic which errs on the side of extremes, only to be subsequently reined back as a compromise is reached. As such, the “TACO” trade is currently outstripping the “Sell America” trade, despite some dollar weakness in response to selling pressure.

Meanwhile, the US is set for a busy shortened trading week in terms of economic and corporate news. The latest Personal Consumption Expenditures index reading, the Federal Reserve’s preferred measure of inflation, is due, although barring a major shock the consensus very much remains that there will be no change to interest rates this month. 

At the same time, there will be a further test of the rotation trade with results from more traditional names such as Johnson & Johnson (NYSE:JNJ), Procter & Gamble Co (NYSE:PG) and United Airlines Holdings Inc (NASDAQ:UAL) up against numbers from “Magnificent Seven” member Netflix Inc (NASDAQ:NFLX). 

• Investment outlook: expert opinion, analysis and ideas
• Insider: bosses buy this top pick plus firm with robust outlook
• 10 hottest ISA shares, funds and trusts

The first month of this year has seen a broadening out of investments, in part at the expense of the mega cap technology trade, as investors have sought opportunities both in old economy names as well as smaller companies, where the effects of lower interest rate are likely to be most positively felt.

Asian markets drifted lower overnight, with the most closely watched markets continuing to react to their domestic playbooks. China kept interest rates unchanged as expected, following the defiant strength of an economic growth figure the previous day. In Japan, the Nikkei 225 was under pressure alongside a spike in yields which accompanied subdued demand for the latest debt auction. The possibility of easing fiscal policy from a new regime could also involve a raft of spending measures, putting a further strain on government finances at a time when higher interest rates and tariff headwinds are overhanging the economy.

The FTSE100 moved further away from the record closing high set on Friday, with another broad markdown reflecting ongoing geopolitical tensions, inflationary concerns relating to new tariff measures and an absence of positive catalysts. 

The proposed European tariffs have weighed in particular on luxury fashion stocks, and Burberry Group (LSE:BRBY) again found itself at the top of the losers’ board ahead of a trading update tomorrow. The further drop has taken the sheen off the stock’s recovery, although the shares remain up by around 25% over the last year on hopes that the “Burberry Forward” strategy is having an increasingly positive impact.

• eyeQ: sell US tech, buy Europe?
• Proposals ease corporate bond access for retail investors
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Elsewhere, the announcement of a further £200 million share buyback programme and an increase of 6.25% in underlying revenues propelled events group Informa (LSE:INF) to the top of the leader board, closely followed by an inevitable further spike in the shares of Endeavour Mining (LSE:EDV) as the gold price continues to break record highs. 

Less positive for sentiment in London as a whole was an update which revealed that pay rises and unemployment remained largely flat, with reduced hiring of new employees even leading into the traditionally busy festive period in hospitality and retail. Even so, the update does little to pressure the Bank of England into reducing interest rates in the immediate future.